Definition: Market
segmentation is the process of dividing a market into distinct and
meaningful groups of buyers who merit separate products and marketing
strategies.
Your business has a potential
market consisting of a vaguely defined group of people who might buy
your products. To invest your money wisely you have to narrow that
broad group down to those people most likely to buy from you.
Customer focus forces your business to succeed.
All markets can be divided into smaller groups or 'market
segments'.
If you do this with the market in which you are competing it will help
you to develop your plans and to competitively position your products
or services.
Market segmentation is a method of organizing and categorizing those
people or organizations that you think will buy your products. You are
breaking the market down into smaller and smaller units to make your
planning simpler and more effective. A market segmentation analysis will help you to determine to whom you
can sell most profitably. Think of the old 80/20 rule: 80 per cent of
your profits come from 20 per cent of your customers.
Each segment has completely
different needs and characteristics to the others. You can define market segments
by groups of customer types. For example if you are an office furniture
manufacturer you could segment the market into four primary groups.
Large office fit outs
(New and refurbished
buildings – usually specified by architect or other
– purchases direct from manufacturer)
Large office ad hoc
replacement and additions
Existing workplaces – purchase from manufacturers direct or
from wholesalers or specialist office furniture retailers
Small office
Fewer than 12 people. Usually purchase from specialist office furniture
retailers
Home office
One or two person offices. Usually purchase from general furniture
retailers with an office furniture department.
You can further break down
these customer groups into sub-segments (or groups
within groups) to sharpen your focus further. When you have
identified which of these groups and sub groups offer your business
potentially the most promising, you can classify them as target
markets or prime prospects.
